Are we on the verge of a downturn in the global investment banking business? Many experts are predicting the "masters of the universe" are going to have a tough time in the second half of the current financial year. End-of-year results will be the opportunity, it is suggested, for slashing jobs and cutting costs in the gilded halls of the bankers, rather than the paying of obscenely big bonus cheques, as was the case last year.
There will be few tears shed for any casualties of an investment banking shake-out but their problems could be regarded as warning signs of broader difficulties in the "real" economy. There have been some recent straws in the wind. Just last week Abu Dhabi, via the investment vehicle PCP Gulf Invest 3, run by the British investment adviser Amanda Staveley, took the opportunity to rationalise its holding in Barclays.
This was a shrewd bit of work and also a sign of the times. PCP's deal with Nomura involved exercising warrants, hedging and institutional placing but the net effect was to lock in the profit it had made on Barclays shares. You would do that only if you had taken the investment decision that the shares were not likely to be as profitable in the future, that they would fall in value. PCP's complex set of transactions must have been some time in the preparation but the timing of the public announcement was spot-on. Released to the London Stock Exchange after normal business hours on Thursday, it came immediately after a series of presentations by Barclays to institutional investors in the City of London, in which Barclays warned of falling revenues from its investment banking business, Barclays Capital.
Barclays executives told analysts that revenue from Barlays Capital might be down some £700 million (Dh4.07 billion) in the current financial year. For a multi-billion pound operation, that is not catastrophic. Barclays made almost £4bn profit on investment banking in the first half of this year. But the loss represents an unwelcome reverse after 18 months of fast growth. Barclays Capital has been the powerhouse of the bank's thriving business since the financial crisis. It should be remembered that in late 2008 Barclays, along with the rest of the British banking system, was on the verge of collapse.
Two of its big rivals, Royal Bank of Scotland and Lloyds TSB, had already been forced to go to the British government for an emergency bailout and had to surrender their independence in return for state funding. Barclays did not want to do the same and instead found Gulf investors, including Abu Dhabi, to inject new capital into its balance sheet. The result has been win-win all round. Barclays kept its independence and, driven by Barclays Capital's thriving investment banking business, went on to emerge as a leading force in the global financial industry.
Abu Dhabi bought a seat at the top table of this business and thereafter, through a shrewd series of moves that culminated in last week's transactions, proceeded to make big profits from the Barclays investment. When the recent transactions are included, something like £2.25bn has been earned by the emirate from Barclays share dealings. Incidentally, that sum puts the emirate's relatively small investment in Manchester City Football Club in proper context - and in the shade.
The mechanism of the Nomura deal also means Abu Dhabi will maintain a long-term relationship with Barclays and thus benefit from any upside in the share price. How likely is it that there will be an upside? Well, if the market experts are to be believed, few in the investment banking business will be seeing surges in their share price in the short term. The bounce-back from the financial crisis was fuelled largely by the need of governments and banks world-wide to refinance themselves. State and corporate debt issuance soared as interest rates fell to near-record lows; proprietary trading and trading on behalf of clients in equities, bonds, foreign exchange and commodities and their derivatives took off as it looked as though the world economy was about to recover without a prolonged period of recession.
Now, two factors are weighing against these profitable investment banking activities. First, the world's regulators have begun to get their act together and impose new rules on the business. The kind of risky activities that led to the 2008 crisis are increasingly being curtailed and new capital requirements imposed. If the banks are forced to put aside large sums of capital to meet these requirements, they will have less to play with on the markets.
Second, the risk of a double-dip recession, exacerbated by fears over looming global currency wars, has made for a more cautious approach among investment bankers in general. It should be pointed out that not everybody shares this newly-pessimistic view. In the Middle East in particular, there are signs that mergers and acquisitions (M&A) activity might buoy the banks through a lean period in the trading businesses. A recent review by Reuters showed the third quarter was the busiest period on record for M&A in the region.
The bad news is that we might be in for a period of belt-tightening by the investment bankers. The good news is that their substantial girths should be able to take it.
fkane@thenational.ae
The biog
Born: High Wycombe, England
Favourite vehicle: One with solid axels
Favourite camping spot: Anywhere I can get to.
Favourite road trip: My first trip to Kazakhstan-Kyrgyzstan. The desert they have over there is different and the language made it a bit more challenging.
Favourite spot in the UAE: Al Dhafra. It’s unique, natural, inaccessible, unspoilt.
Temple numbers
Expected completion: 2022
Height: 24 meters
Ground floor banquet hall: 370 square metres to accommodate about 750 people
Ground floor multipurpose hall: 92 square metres for up to 200 people
First floor main Prayer Hall: 465 square metres to hold 1,500 people at a time
First floor terrace areas: 2,30 square metres
Temple will be spread over 6,900 square metres
Structure includes two basements, ground and first floor
The specs: 2019 Haval H6
Price, base: Dh69,900
Engine: 2.0-litre turbocharged four-cylinder
Transmission: Seven-speed automatic
Power: 197hp @ 5,500rpm
Torque: 315Nm @ 2,000rpm
Fuel economy, combined: 7.0L / 100km
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
What is an FTO Designation?
FTO designations impose immigration restrictions on members of the organisation simply by virtue of their membership and triggers a criminal prohibition on knowingly providing material support or resources to the designated organisation as well as asset freezes.
It is a crime for a person in the United States or subject to the jurisdiction of the United States to knowingly provide “material support or resources” to or receive military-type training from or on behalf of a designated FTO.
Representatives and members of a designated FTO, if they are aliens, are inadmissible to and, in certain circumstances removable from, the United States.
Except as authorised by the Secretary of the Treasury, any US financial institution that becomes aware that it has possession of or control over funds in which an FTO or its agent has an interest must retain possession of or control over the funds and report the funds to the Treasury Department.
Source: US Department of State
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Who is Mohammed Al Halbousi?
The new speaker of Iraq’s parliament Mohammed Al Halbousi is the youngest person ever to serve in the role.
The 37-year-old was born in Al Garmah in Anbar and studied civil engineering in Baghdad before going into business. His development company Al Hadeed undertook reconstruction contracts rebuilding parts of Fallujah’s infrastructure.
He entered parliament in 2014 and served as a member of the human rights and finance committees until 2017. In August last year he was appointed governor of Anbar, a role in which he has struggled to secure funding to provide services in the war-damaged province and to secure the withdrawal of Shia militias. He relinquished the post when he was sworn in as a member of parliament on September 3.
He is a member of the Al Hal Sunni-based political party and the Sunni-led Coalition of Iraqi Forces, which is Iraq’s largest Sunni alliance with 37 seats from the May 12 election.
He maintains good relations with former Prime Minister Nouri Al Maliki’s State of Law Coaliton, Hadi Al Amiri’s Badr Organisation and Iranian officials.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
The Farewell
Director: Lulu Wang
Stars: Awkwafina, Zhao Shuzhen, Diana Lin, Tzi Ma
Four stars
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
Conservative MPs who have publicly revealed sending letters of no confidence
- Steve Baker
- Peter Bone
- Ben Bradley
- Andrew Bridgen
- Maria Caulfield
- Simon Clarke
- Philip Davies
- Nadine Dorries
- James Duddridge
- Mark Francois
- Chris Green
- Adam Holloway
- Andrea Jenkyns
- Anne-Marie Morris
- Sheryll Murray
- Jacob Rees-Mogg
- Laurence Robertson
- Lee Rowley
- Henry Smith
- Martin Vickers
- John Whittingdale
The specS: 2018 Toyota Camry
Price: base / as tested: Dh91,000 / Dh114,000
Engine: 3.5-litre V6
Gearbox: Eight-speed automatic
Power: 298hp @ 6,600rpm
Torque: 356Nm @ 4,700rpm
Fuel economy, combined: 7.0L / 100km
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.